Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195696 
Authors: 
Year of Publication: 
2018
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 6 [Issue:] 1 [Publisher:] MDPI [Place:] Basel [Year:] 2018 [Pages:] 1-26
Publisher: 
MDPI, Basel
Abstract: 
A new method for pricing contingent claims based on an asymptotic expansion of the dynamics of the pricing density is introduced. The expansion is conducted in a preferred coordinate frame, in which the pricing density looks stationary. The resulting asymptotic Kolmogorov-backward-equation is approximated by using a complete set of orthogonal Hermite-polynomials. The derivedmodel is calibrated and tested on a collection of 1075 European-style 'Deutscher Aktienindex' (DAX) index options and is shown to generate very precise option prices and a more accurate implied volatility surface than conventional methods.
Subjects: 
Kolmogorov-backward-equation
asymptotic expansion
Hermite-polynomials
implied volatility surface
JEL: 
C61
G13
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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